The Wall Street Consensus

Abstract

<p>The Wall Street Consensus (WSC) is an elaborate effort to reorganize development interventions around selling development finance to the market. The Billions to Trillions agenda, the World Bank 'Maximizing Finance for Development' or the G20 'Infrastructure as an Asset Class' all call on international development institutions and governments of poor countries to ‘escort capital’ – the trillions of institutional investors – into ‘investable development bonds’, preferably in local currency. For this, the 10 WSC commandments aim to simultaneously reorganize local financial systems around bond market-based finance and forge the de-risking state. The state derisks bond finance for institutional investors by extending guarantees and subsidies to cover (i) demand risks attached to user-fees for (PPP) infrastructure, (ii) political risk attached to policies such as nationalization, higher minimum wages and climate regulation, (iii) climate risks that may become part of regulatory frameworks as material credit risks and (iv) bond market (liquidity) risks that complicate foreign investors’ exit from development assets. The WSC narrows the scope for a green developmental state that could design a just transition to low- carbon economies.</p>

The Wall Street Consensus in pandemic times: what does it mean for climate-aligned development?

“…A new policy paradigm has emerged in recent years which posits that development goals can be achieved by placing global finance at the centre of development processes. Gabor (2020) labels this the "Wall Street Consensus" (WSC). In common with the Washington Consensus, the WSC emphasises fiscal discipline, central bank independence and privatisation.…”

“…The WSC promotes the structural transformation of local financial systems in the image of US market-based finance, allowing global investors easy entry into, and exit from, new SDG bonds (see also Mawdsley 2018). To facilitate this turn to market-based finance, Gabor (2020) argues, the WSC also seeks to transform central banks by normalising unconventional interventions that shift liquidity and exchange rate risk from institutional investors to the balance sheet of central banks and thus to the states (see also Musthaq 2020).…”

“…Second, the COVID-19 crisis saw the normalisation of central bank interventions to de-risk the bonds held by institutional investors (Gabor 2020). While central banks in most high-income countries had already assumed market-maker of last resort interventions after the global financial crisis (Mehrling 2014;Gabor 2020), the translation of this policy to the Global South remained elusive before the pandemic: such interventions, which include the purchase of government bonds, contravene the spirit of central bank independence, invoking the ghost of political capture and fiscal dominance. But the COVID-19 outbreak changed the political appetite for direct interventions, as the rise in uncertainty led to a sharp decline in international investors' holdings of local currency bonds in emerging market economies, causing a sharp rise in yields (Hördahl and Shim 2020).…”

“…This created momentum for the support of policy initiatives that promise infrastructure-led "green recovery" and climate resilience (Estevão 2020;Hepburn et al 2020;IMF 2020;World Bank 2020a). 2 Before the pandemic, the WSC gestured towards environmental sustainability by adopting the language of derisking from debates around financing renewable energy projects in the Global South, and by aligning Environment Social and Governance (ESG) metrics with the SDGs (Gabor 2020). But following the outbreak of the pandemic, the WSC has entered a new phase in which climate change has a more prominent role: the pandemic-era WSC has put private sector-led solutions to climate problems at the core of its agenda, promising finance-led pathways to climate-aligned development (Klein 2020).…”

Beyond Financialisation: The Need for a Longue Durée Understanding of Finance in Imperialism

“…Milberg 2009;Durand and Milberg 2020). These multinational (financial) corporations have economic interests in attempts to develop financial markets in developing countries through what has been called the "Wall Street-Consensus" (Rowden 2019;Gabor 2020). This involves the promotion of public-private-partnerships (PPPs) and the development of local capital markets.…”